5.8 Shares Admitted to Trading on a Regulated Market 183by an unauthorised person is generally restricted.^210 For example, sending a busi-
ness plan to, or discussing it with, potential investors, is a financial promotion re-
stricted under the FSMA. This may require the sender or other persons involved in
the process to be authorised in the UK or to ensure that the communication is ap-
proved by an authorised person.^211 As the scope of the restrictions is very broad,
they are complemented by private placement exemptions under the Financial Ser-
vices and Markets Act 2000 (Financial Promotion) Order 2001.
The 144A market in the US. The costs of the Sarbanes-Oxley corporate
governance regime have encouraged companies to find ways of reaching investors
without trading on the public markets in the US. Non-US companies can benefit
from the so-called 144A market, which allows corporate issuers to place equity or
debt with a limited number of qualified investors. Companies can use the 144A
rule to place securities with so-called Qualified Institutional Buyers, provided the
securities are not owned by more than 500 such investors.
5.8 Shares Admitted to Trading on a Regulated Market
Shares in a public limited-liability company can be admitted to trading on a regu-
lated market (listed), admitted to trading on an unregulated market, or privately-
held (unlisted). It is characteristic of a listed company that it has a large number of
small shareholders. Their interests are predominantly short term. Financial inves-
tors are protected by mandatory provisions of company law and securities markets
law, meaning that issuers of securities admitted to trading on a regulated market
must comply with a large regulatory regime under Community law.
After an IPO, established listed companies rarely raise finance from the capital
market by offering their own shares for cash (section 5.10), because doing so
would potentially depress the share price.^212 First, it would dilute the ownership
rights of existing shareholders who prefer not to subscribe for new shares. Second,
it would often transfer value from existing shareholders to new shareholders,
because new shareholders who may buy existing shares and pay the market price
will not subscribe for new shares without a discount. Third, the issuing of new
shares to the public can signal bad news.
However, listed companies often offer shares to the public in other ways. For
example, the company may pay for a business acquisition with its own shares
(section 5.11). A takeover bid made by a listed company may consist of an
exchange offer pursuant to which the target’s shareholders will receive shares in
the bidder for their shares in the target. Such a takeover may be a normal
acquisition of shares or a formal merger.
In addition, where the firm owns shares in a listed company or a company that
is in the process of going public, the firm can release capital by selling those
(^210) Section 21(1) of the FSMA 2000: “A person ... must not, in the course of business,
communicate an invitation or inducement to engage in investment activity.”
(^211) Section 21(2) of the FSMA 2000.
(^212) See also Myers SC, Capital Structure, J Econ Persp 15 (2001) pp 91–92.